The experts

Our moderator

Josh ConstineEditor-at-Large for TechCrunch. Josh spent the last six years writing about early-stage start-ups, blockchain, streaming music, and social networks. He’s also led over 100 talks with people like Edward Snowden, Mark Zuckerberg, and Senator Cory Booker.

Our panel

Fred SchebestaSerial entrepreneur and Co-Founder of Finder.com, a global comparison site that helps people make better shopping decisions.

Ariana SimpsonFounder of Autonomous Partners, a fund that invests across the blockchain ecosystem. A former Facebook employee, Ariana has worked in the crypto space (including BitGo) for five years.

Susan AkbarpourCo-Founder and CEO of Mavatar Technologies, a blockchain platform aiming to be the Uber of retail.

The lay of the land

Josh Constine: Susan, can you tell us a little about the real potential for blockchain in advertising? What’s the promise that we’re looking toward in five years?

Susan Akbarpour: The promise of this technology is bringing transparency to any platform or decentralized network. The problem is that the advertising industry isn’t aligned with the DNA of blockchain. It’s focused on push advertising. Advertisers are shoving ads down consumers’ throats hoping they’ll extract value from them. Consumers don’t want that.

We need to rethink our old models and come up with more consumer-centric advertising that helps consumers process data, compare products, and get their arms around pricing. Blockchain can help us do this and create a user-generated advertising model.

Josh Constine: I think that’s an important shift to understand. Instead of saying, ‘We’re trying to trick users out of their time,’ it’s becoming a real value exchange.

Fred, what’s the state of the industry right now?

Fred Schebesta: Here’s my take: right now, there isn’t much you can do. Blockchain just can’t handle the number of transactions. Ethereum can manage about 20 transactions a second. If you’re doing programmatic, you’re making billions of transactions a second.

So, there’s no actual roll-out right now, but there are a lot of areas that I would look at. For example, data. You have a company like Datum. They have a coin, DAT, that lets consumers sell their data. Another company, Brave, has a very interesting model, where consumers get paid to watch ads. Another one is MetaX, which is aiming to solve click fraud.

These are the kinds of areas I’d look at, but there’s nothing you need to do right now. There are lots of projects and lots of people competing to do the same things, but the industry is only just getting started.

Josh Constine: Fred, maybe you could tell us how Brave, the company founded by Brendan Eichmann (Co-Founder of Mozilla), is helping to create a real value exchange in advertising?

Fred Schebesta: Mozilla was a major platform. It made all its money through Google, which made Mozilla its default browser. This time, Brendan’s browser, Brave, has ad blocking turned on by default. That means all the cookies that you’re trying to set and all the advertisements you’re trying to push won’t fire.

Power is being given back to the customer and I think the potential here is massive. You’ve got a marketplace where people can control the amount of advertising they see and how their personal data is being sold.

Josh Constine: As we move towards this new value-exchange model, I think advertising that fails to provide added value is going to become passé. I think the industry will turn away from it. We’re already seeing this happen with the increasing popularity of ad blockers. There are tons of people who are missing ads because of this trend of customer exploitation.

Future use cases

Josh Constine: People are talking a lot about advertising and blockchain, but how is it relevant to publishers, marketers, and other companies?

Ariana Simpson: I think we’re still figuring that out. There’s a great book [Technological Revolutions and Financial Capital] by Carlota Perez, which I highly recommend. She looks at technological revolutions and financial capital. One of the main points she makes is that often we don’t know the ultimate use cases of a new technology for the first 15 years of its existence.

I think we’re still very much in that phase, and that’s why I mostly invest in the infrastructure layer. No matter what, we need to be able to support a much higher volume of transactions than we currently do.

There was this app that went viral a couple of months ago called CryptoKitties. It was the first viral Ethereum app, and it consumed 25% of Ethereum’s network traffic in a matter of days.

Imagine you’re trying to process a wire or something meaningful via the blockchain, and your transaction can’t go through because somebody is using it to breed cats. Until we sort out a lot of the scalability questions, we can’t get to the final use cases. I think we’re very much in the infrastructure phase of this build out.

Josh Constine: When people think of CryptoKitties, they think of it as a toy. But often toys are the prelude to serious things. Just the fact that something like this could go viral within the limited crypto community shows that there is huge potential if you come up with an idea that really matters to people.

Think of Pokémon as a publisher that created Pokémon Go to further its brand. Then you get an idea of what you can do when you start giving away digital content or digital currency through a publisher, a brand, or a media property.

The scalability issue is really important. Another issue is that publishers want to test it, but only if there’s a lot of demand.

Meanwhile, advertisers aren’t interested unless there’s somewhere to actually publish their ads. So, how are we going to deal with this chicken and the egg problem? How are we going to move exchanges or programmatic advertising onto the blockchain?

Susan Akbarpour: Well, I’m not sure about programmatic, but influencer marketing is a very big trend. 16% of our advertising budget is spent on that channel. The major bottleneck for this model is micropayments, which are settled and organized by affiliate networks. That’s how blockchain and cryptocurrency can come to the plate. It can help retailers connect with their influencers—or ambassadors—directly.

Ariana Simpson: I’ve been seeing a lot of influencer marketing on blockchain via digital collectables. Personalities or celebrities create scarce digital commodities that people are paying shocking amounts of money for. So, that’s a completely new model. It’s similar to physical merchandise, but because it’s digital, a blockchain is actually a really effective way to track ownership. You can prove that there’s only one and that you have it. I think that’s going to be one of the bigger trends in consumer-facing blockchain apps over the next few years.

Hidden threats

Josh Constine: In the early days of the internet, it was vice companies that really found a home there. We saw that at the beginning of the blockchain with the Silk Road. Now we’re finally starting to see more legitimate businesses get involved. There have been all sorts of ICOs that I really hope you guys didn’t invest in this year.

Susan Akbarpour: Didn’t?

Josh Constine: Yep, they may look good now, but I’m dubious about their future. We’re finally starting to see companies like Telegram, which has a real product, get involved. They’re starting to create their own tokens and currencies. I think we’re starting to shift away from it being purely about people who are shunned by the rest of society.

Ariana Simpson: Hey!

Josh Constine: Yes, I’m talking about the people you guys invest in, but I think we’re moving towards more legitimate businesses. That said, there are still so many people who you can’t trust in this business, and there’s a lot of hype.

Susan Akbarpour: We had 1,000 ICOs last year, and investors had 1,300% ROI on those ICOs, which is really high compared to the traditional model.

Josh Constine: Yes, but people don’t really understand that. People who’ve made a lot of money in Ethereum and Bitcoin are desperately trying to diversify their portfolios, so they’re dumping money into low-quality ICOs. That doesn’t mean these are good companies.

Susan Akbarpour: That was happening last year. This year you’ll see better applications and better use cases for blockchain and cryptocurrencies. I invested in Telegram and I’ll be investing in a couple of other currencies during the next few months.

I have three simple metrics for investing in any platform. I don’t invest in companies that are building an underlying platform with the aim of integrating it with blockchain later. As a software developer, I know what can go wrong. I only invest in blockchain-ready platforms.

The second metric is the utility of the company’s token within that blockchain. There were great platforms out there that don’t depend on their tokens. The problem is that investors don’t get any ROI from investing in those kinds of platforms. The third metric is what every investment model uses: team. I look at the team and you see if these guys are doers. Are they really solving a problem?

I’ll give you a good example of how the utility of our token was established. Last year we created an Uber for retail sales with the hope of making the world shoppable. We went to these top retailers and told them, ‘You can turn every one of your shoppers into an influencer.’ The question they came back with was really disappointing – ‘Who’s taking care of the accounting part? Today I sent one big check to an affiliate network, and I know they’re giving most of it to “favored nation” publishers, but at least I sent one check, and then they start pouring traffic into my site.’

We didn’t have an answer, because the accounting could kill that scalable product. Then we came up with a token so we could reward the shoppers and influencers for verifying sales and promoting products in real-time. Without the token, our platform wouldn’t have worked.

Susan Akbarpour: No, the business model was completely out of the picture if we didn’t have a token.

Fred Schebesta: Let’s talk about the shit coins out there. Anything that says, ‘You put in $1 and you get $1 billion back,’ that’s a shit coin.

Susan Akbarpour: Definitely.

Fred Schebesta: Anyone who tells you, ‘We have a magic formula where we can arbitrage the market, and we know where it’s going,’ they’re trying to sell a shit coin.

Susan Akbarpour: Yes.

Fred Schebesta: Anything that relies on a magical computer program that no one else knows – shit coin. Anything that’s trying to solve problems that Amazon, Google, or Facebook are trying to solve – shit coin. Those guys have already gone down this path. They’ve got hundreds of people smarter than the people doing blockchain.

Ariana Simpson: They asked me what to do. So I don’t know about that.

Josh Constine: I would say they asked you because they looked and couldn’t figure out whether or not there’s a real need to do something with blockchain.

Fred Schebesta: Exactly.

Ariana Simpson: It’s just indicative of where they are. At this point they’re becoming the incumbent. They’re the disreputable companies. Yes, they have huge amounts of resources to throw at this problem, but they’re very much in the, ‘Oh, fuck, what do we do?’ phase.

If you look at Zuckerberg, he came out and said, ‘This is the year of decentralization and looking into crypto.’ They’re starting to pay attention. Yes, there are a lot of garbage coins out there, that’s true, but dismissing the industry off-hand is really a bad idea.

There used to be this trend where B-level entrepreneurs were, like, ‘Oh, I want to start a company, let’s put it on a blockchain.’ But in the past nine months, a lot of senior, smart, accomplished people with domain expertise have said, ‘Oh, our industry has this problem, let’s try and solve it with blockchain.”

All the VCs are like, ‘Whoops, we missed this,’ and they’re amending their LPAs so they can invest in tokens. There’s a real shift happening here.

Susan Akbarpour: It’s always cheaper for companies like Google and Facebook to acquire those innovative companies because in a big company, innovation is really hard.

Ariana Simpson: You can’t acquire token networks and that’s going to be a really big issue. We have no precedent for this, and it’ll be very difficult. I mean, what are you acquiring? These are decentralized distributed networks. These companies are ripe for being disrupted because they can’t acquire the network.

What’s next for blockchain advertising?

Josh Constine: We received a question from the audience – ‘Could the blockchain transparency help us resolve the Russian propaganda ad buying situation?’

This is pertinent, as we’ve seen that the big social networks don’t have much information on the advertisers they work with. We’re also seeing companies like Facebook say that they’re going to request signed documentation about who you are and why you’re buying ads. Do you guys think that some of this will actually help?

Susan Akbarpour: Definitely, especially if we move towards pull advertising. The creator of that content is clear and you can see who has paid for what, and who has been affected. Blockchain makes that image really transparent.

Josh Constine: Anybody else?

Fred Schebesta: I’m not sure what the laws are around who advertises where online.

Josh Constine: I think that’s the problem. There aren’t proper laws against this. We have a lot of regulation around political advertising on television and on radio, but we haven’t been able to keep up on the Internet.

Right now, I want to see where you guys think we’re going next? What products or infrastructure should the people in this room be integrating into their businesses?

Ariana Simpson: For me, there are the two ‘Ss’ – scalability and security. Historically, people have been pretty la-dee-dah about managing their passwords, but big data breaches have made us pay attention to security.

Security solutions that focus on consumers and institutions will come to market in the next six to eighteen months, and that’s an important first step. The other consideration is scalability. Until we can process a high volume of transactions, we won’t really be able to build a rich ecosystem of apps on blockchains. We just can’t handle the volume.

Fred Schebesta: That’s exactly right. You look at any great market or any great economy, they have really good on- and off-ramps. When I’m talking about on- and off-ramps, I’m talking about transforming the currency we hold in our hands into cryptocurrency and transforming it into traditional currencies. The on- and off-ramps are still very bumpy. If we create easy contracts for moving money in and out, I think that’s going to boost the industry.

Five key takeaways for blockchain in advertising

We’re entering phase three of advertising

Push advertising is over. People are sick of irrelevant messages and they’re using blockers to dodge ads. Advertisers need to provide value if they’re going to convince consumers to pay attention to their messages. To get there, we need to improve the transparency of the programmatic advertising business.

We’re already seeing interesting blockchain companies emerge

Datum helps people sell data, MetaX is helping with click fraud, and Brave is rewarding people for watching ads, instead of just cramming ads down their throats.

Scalability and security are issues

It’s difficult to scale blockchain solutions and that’s one of the reasons why the ultimate use cases for the technology aren’t clear yet. The good news is that IBM and Oracle are creating platforms that are solving this problem. The other issue is security. If we can’t create secure blockchain advertising solutions, the industry won’t take off.

Focus on reputability when choosing blockchain partners

Find people who are building real, useful things with this technology today, not in some far-flung future, and make sure they have an incredible team. Most importantly, don’t trust anyone who tells you they’ve got the secret formula or that they know “the tricks.”

It’s early days

Blockchain is a genuinely exciting, hyper-disruptive technology, but its ultimate use cases

aren’t clear yet. Instead of rushing to bolt it onto your business, take the time to learn about it and familiarize yourself with the key players. If you’re an investor, proceed with care, there are a lot of scammers out there.

To learn more about blockchain and how it can help build consumer trust, read this blog.